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Analysing the Effect of Oil Price Shocks on Asset Prices: evidence from UK firms

Alaali, Fatema (2017): Analysing the Effect of Oil Price Shocks on Asset Prices: evidence from UK firms.

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Abstract

This study examines the responses of some of the UK transportation, travel and leisure, and oil and gas firms to oil price changes. Fama-French-Carhart's (1997) four-factor asset pricing model is augmented with the oil price risk factor to study the association of oil and stock prices of 25 firms over the period from January 1998 to December 2012. The extent of the exposure of UK transportation and travel and leisure firms is generally negative but it is particularly significant for a number of firms including delivery services, travel and tourism, and airlines. Oil price risk exposures of UK oil and gas companies are generally positive and significant. With the aid of asymmetric and scaled specifications, some firms show strong evidence of asymmetry in the reaction of stock returns to changes in the price of oil comprising travel and tourism, airlines, and integrated oil and gas. Moreover, the results document that oil price risk exposures vary over time. In particular, the global recession of 2008 has significantly contributed to the oil price risk exposure of travel and tourism and integrated oil and gas firms. These results should be of interest to financial analysts, corporate executives, regulators and policy makers.

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